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Publication 970

When Must the Deduction Be Repaid (Recaptured)(p41)

If, after you file your 2010 tax return, you or someone else receives tax-free educational assistance for, or a refund of, an expense you used to figure a tuition and fees deduction on that return, you may have to repay all or part of the deduction. This applies to assistance and refunds received by the individual claiming the deduction, and, in the case of a student who claims the deduction, refunds received by anyone else who paid such expenses for the student.
You must include the assistance or refund in income in the year you receive it to the extent that the deduction of the refunded amount reduced your tax in 2010. Refigure your tuition and fees deduction for 2010 as if the tax-free assistance or refund was received in 2010. Subtract the amount of the refigured deduction from the amount of the deduction you claimed on your 2010 tax return. The result is the amount you must include in income (recapture). Add the recapture amount to your income for the year in which you received the assistance or refund by entering it on the "Other income" line of Form 1040. Form 1040A cannot be used. Your 2010 tax return does not change.


You and your spouse paid $3,000 tuition and fees in December 2010 for your child who began college in January 2011. You filed your 2010 Form 1040 on February 15, 2011, showing a MAGI of $150,000. On that return you claimed a tuition and fees deduction of $2,000 (MAGI limitation). After you filed your return, your child dropped two courses and you received a refund of $1,400. You must refigure your 2010 tuition and fees deduction using $1,600 of qualified education expenses instead of $3,000. Your refigured deduction is $1,600. You must include the difference of $400 ($2,000 original deduction − $1,600 refigured deduction) on the "Other income" line of your 2011 Form 1040.